Wednesday’s analyst upgrades and downgrades

Inside the Market’s roundup of some of today’s key analyst actions

Analysts at National Bank Financial warn oil and gas investors should expect “another year of macro uncertainty.”

“The ebb and flow of conspiring oil and gas fundamentals influenced by uncertain and complicated global geopolitics have forced us to think of 2024 as a year of cautious optimism,” they said. “We expect much of the same turbulence in the year ahead as inflation continues to play a role, interest rates remain sticky and tense geopolitics persist (which makes a 12-month price prediction tricky). To start the year, we would describe our investment stance as ‘on the defensive’ given the macro uncertainty (but at the same time are not flagging material downside from here).”

While acknowledging their view of the energy sector is “tepid” at best, the firm thinks the Canadian oil and gas landscape is “well positioned with opportunities to differentiate through strategic shifts, operational prowess and capitulation on entrenchment.”

“This organic positioning is about to be bolstered by the approaching tidewater milestones for both oil (TMX) and natural gas (LNG Canada),” the group added. “From an equity perspective, the group is relatively healthy and backstopped by quality assets and liquidity positions which can support a healthy return of capital profile down to US$55.00/bbl as compared to our 2024 oil price assumption of US$75.00/bbl. We remain resolute in our belief that the leaders for the coming year will be those who demonstrate: strategic improvements from the core (as mentioned above), prioritized the balance sheet strength (return flexibility) and capital allocation to pursue optimizations and margin expansion (think efficiency).

“Simply put, the top performers for 2024 are likely those that have made moves to enhance operational and strategic differentiation.”

In a research report released late Tuesday titled Drive To Differentiate; If You Ain’t First, You’re Last, the analysts pointed to four important investment themes for the year ahead:

1. Accelerated Returns

“With the last few companies set to hit their debt targets this year, 2024 is likely the last year we will see accelerated returns as a theme,” they said. “In total, we forecast our coverage has the ability to return ~$40 billion to shareholders in the year.”

2. M&A

“2023 was active for deal flow, and we expect more of the same for 2024,” they said. “Deals should be centred around inventory capture as companies look to add depth and efficiency to the portfolio as the demand for return of capital prevails ahead of growth.”

3. Strategic Shifts

“Although difficult to pinpoint, we support those companies looking to differentiate the business throughout the year, primarily through A&D and operational advancement to improve margins,” they said.

4. Growth

“Not necessarily on an absolute level, but think about the per-share growth in the context of share repurchases,” they said. “This return mechanism provides the ability to grow all aspects of the business, including dividends. Topline production growth should average 5 per cent, however, on a per-share basis this could represent an incremental 10 per cent based on the success of buyback programs.”

After updating their valuation methodology to reflect “long-term fair value in a more normalized pricing environment (mid-cycle)” as well as changes to the firm’s commodity price assumptions, the analysts cut their 12-month target prices for stocks in the sector by an average of 14 per cent. They now see 56-per-cent total return potential for companies with an “outperform” rating and 25 per cent for those with “sector perform” recommendation.

They also made one rating change, downgraded Birchcliff Energy Ltd. (BIR-T) to “sector perform” from “outperform” with a $6.50 target, down from $9.25. The average target on the Street is $8.86, according to Refinitiv data.

“The revision reflects what we perceive as the street’s desire for greater visibility around its payout as we transit trough gas prices,” they said.

The analysts’ target adjustments are:

• Arc Resources Ltd. (ARX-T, “outperform”) to $25 from $26. The average is $27.33.
• Baytex Energy Corp. (BTE-T, “outperform”) to $7.25 from $8.25. Average: $7.95.
• Canadian Natural Resources Ltd. (CNQ-T, “sector perform”) to $90 from $100. Average: $97.22.
• Crescent Point Energy Corp. (CPG-T, “outperform”) to $14 from $19. Average: $14.35.
• Crew Energy Inc. (CR-T, “sector perform”) to $5 from $7. Average: $8.05.
• Cenovus Energy Inc. (CVE-T, “outperform”) to $29 from $36. Average: $31.79.
• Enerplus Corp. (ERF-N/ERF-T, “outperform”) to US$21 from US$25. Average: US$20.60.
• Freehold Royalties Ltd. (FRU-T, “outperform”) to $17 from $20. Average: $18.52.
• Imperial Oil Ltd. (IMO-T, “sector perform”) to $89 from $110. Average: $85.17.
• Kiwetinohk Energy Corp. (KEC-T, “outperform”) to $20 from $22.50. Average: $19.64.
• Kelt Exploration Ltd. (KEL-T, “outperform”) to $7.50 from $8.75. Average: $8.98.
• Lycos Energy Inc. (LCX-X, “outperform”) to $9 from $10. Average: $7.97.
• Logan Energy Corp. (LGN-X, “outperform” $1.50 from $1.35. Average: $1.67.
• Lucero Energy Corp. (LOU-X, “sector perform”) to 80 cents from $1. Average: 92 cents.
• MEG Energy Corp. (MEG-T, “sector perform”) to $30 from $31. Average: $30.50.
• Nuvista Energy Ltd. (NVA-T, “sector perform”) to $14 from $15. Average: $16.32.
• Ovintiv Inc. (OVV-T/OVV-N, “outperform”) US$53 from US$69. Average: US$58.52.
• Peyto Exploration and Development Corp. (PEY-T, “outperform”) to $15 from $17.50. Average: $16.57.
• Paramount Resources Ltd. (POU-T, “outperform”) to $40 from $42.50. Average: $39.39.
• Prairiesky Royalty Ltd. (PSK-T, “sector perform”) to $25 from $28. Average: $26.83.
• Spartan Delta Corp. (SDE-T, “outperform”) to $4.50 from $6.50. Average: $5.75.
• Surge Energy Inc. (SGY-T, “outperform”) to $11 from $13. Average: $13.33.
• Suncor Energy Inc. (SU-T, “outperform”) to $57 from $74. Average: $52.58.
• Tourmaline Oil Corp. (TOU-T, “outperform”) to $70 from $80. Average: $82.41.
• Topaz Energy Corp. (TPZ-T, “outperform”) to $27.50 from $30. Average: $27.65.
• Tamarack Valley Energy Ltd. (TVE-T, “outperform”) to $6.50 from $6. Average: $5.65.
• Vermilion Energy Inc. (VET-T, “outperform”) to $20 from $24. Average: $25.11.
• Whitecap Resources Inc. (WCP-T, “outperform”) to $15 from $18.50. Average: $13.87.
• Yangarra Resources Ltd. (YGR-T, “sector perform”) to $2 from $4. Average: $2.85.

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Citi analyst Alexander Hacking is now using an 18-month closure of First Quantum Minerals Ltd.’s (FM-T) Cobre Panama as his base case scenario when assessing the Vancouver-based miner as its dispute with the Panamamian government continues.

In a research note released late Tuesday, he predicted the mine will not have production through all of 2024 and “most” of 2025.

“We don’t know what will happen in Panama,” said Mr. Hacking. “The best case on timing (approximately 10 per cent) appears to be that the company negotiates with the new government and there is a pathway to reopen the mine in late-2024. Our base case (approximately 70 per cent) is that the mine faces a 12- to 30-month closure as FM negotiates with the new government, works towards a ‘national social license’ (possibly requiring a referendum) and then reopens in 2025-26. The bear case (20 per cent) appears to be that the mine remains closed for many years until arbitration proceedings are full played out.”

David Berman: Is First Quantum a takeover target? Here we go again

He thinks the majority of investor focus has shifted to the state of the First Quantum’s cash flow and balance sheet, seeing it looking at options to fund its 2025 notes. That could include the sale of non-core or minority assets with Barrick Gold Corp. (ABX-T) reportedly interested in potential deals, including a takeover. He did emphasize “it remains to be seen if large shareholders would prefer this option vs the company going it alone.”

“We model FM with $0.7-billion negative FCF in 2024, assuming $1.1-billion of capex,” he said. “This can be funded by existing cash and the $1-billion undrawn revolver. We expect more color on the earnings call. Net debt increases to $7-billion by year-end 2024, still below our NAV on Zambia, which is closer to $12-billion. Note: implies could sell 10-per-cent minority in Zambia to fund 2025 Senior Notes.”

“The attractiveness of any offer from Barrick will depend on large shareholders view on: 1) value and structure (contingent payment for Panama?), 2) who is better equipped to resolve Panama, and 3) Zambia synergies (we are skeptical given that Sentinel smelter appears full for the next decade at least).”

Based on cuts to his outlook for Cobre Panama, Mr. Hacking reduced his earnings before interest, taxes, depreciation and amortization (EBITDA) projection for 2024 by 67 per cent to $1-billion and 2025 by 25 per cent to $3.8-billion. His earnings per share projections slid to a loss of 40 cents and profit of $1.74, respectively, from gains of 73 cents and $2.31.

That led him to lower his target for First Quantum shares to $14 from $32, reiterating a “neutral” rating. The average target on the Street is $17.99.

“This is admittedly somewhat arbitrary as we have no real visibility on Panama outcomes,” he said.

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National Bank Financial analyst Cameron Doerksen thinks investors continue to have an “overly pessimistic outlook” for Air Canada (AC-T) ahead of the release of its fourth-quarter 2023 financial results.

“Investors have numerous concerns about Air Canada including the growing risk of a recession in Canada, the outcome of negotiations with its pilots, higher capex in the coming years, and increased competition ... The bottom line for us is that the current valuation for Air Canada is reflecting what we believe is an overly pessimistic outlook and the stock has significantly underperformed its closest North American peers,” he said.

While he acknowledged recession risks are linger, Mr. Doerksen thinks demand “still looks healthy.”

“We believe investors’ largest concern for Air Canada is the sustainability of demand and pricing in the context of growing financial constraints on consumers and the risk of a recession,” he said. “However, demand for air travel in Canada appears to be holding up well. Based on CATSA passenger screening data at Canada’s largest airports, the 7-day rolling average of passenger traffic in Canada finished the year 3.6 per cent ahead of last year and just 0.2 per cent below 2019 after tracking close to 2019 levels for much of the year. Air Canada also recently reported that over the peak holiday period, it carried 10 per cent more passengers versus a year ago. According to Statistics Canada, which reports monthly operational and financial performance of Canada’s major airlines, the industry load factor (percentage of seats filled) in October (the latest reported month) showed continued strength, coming in at 84.8 per cent, suggesting that industry demand remained strong for at least the first month of Q4. While down from 87.2 per cent in September, the October load factor was higher compared to the 81.5 per cent reported in October 2022.”

He also pointed to worries about approaching capital expenditure spending as Air Canada upgrades its fleet. However, he thinks that investment is consistent with past growth, seeing it “readily manageable given the company’s $8.9 billion in cash and our expectation for positive FCF and lower leverage through 2025.”

Mr. Doerksen made modest reductions to his 2024 forecast, which he said “conservatively” assumes a 5-per-cent decline in unit revenues and a fuel price that is only modestly higher than the current one.

Keeping an “outperform” recommendation for Air Canada shares, he lowered his target by $1 to $31. The average on the Street is $29.88.

“Air Canada shares are trading at just 3.5 times EV/EBITDA,” he said. “This is below the historical average forward multiple (excluding the pandemic years) of 4.4 times. Indeed, if we assumed that AC’s shares should trade at its historical average multiple, the current share price implies that 2024 EBITDA would come in at $2.8-billion, a 30-per-cent decline from the $4.0 billion we forecast for 2023.”

“Most airline stocks saw a significant decline through the latter part of the summer and into the fall as investor concerns over sustained demand and pricing as well as the rising cost of jet fuel weighed on share prices. However, since the end of October, U.S. airline stocks have recovered considerably with Delta shares up 33 per cent, United up 23 per cent and American Airlines up 31 per cent. While Air Canada shares have also rebounded slightly (up 14 per cent over the same period), it has not been to the same magnitude as the U.S. peers, noting that AC shares finished 2023 down almost 4 per cent (versus TSX up 8.1 per cent) compared to the U.S. legacy carriers which were all up at least 8 per cent (with Delta shares notably up over 22 per cent on the year).”

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While he thinks fundamentals for fertilizer markets remain “favourable” heading into 2024, RBC Dominion Securities analyst Andrew Wong sees them as “likely less exciting than in the past two years, as the market normalizes after the impacts from the Russia/Ukraine war.”

“However, structural market changes remain in place with potash prices bottoming at levels above prior lows, nitrogen prices supported by marginal costs based on European natural gas prices that are still double historical levels, and phosphate markets remain tight. We think fertilizer equities can provide solid cash generation (10-per-cent FCF yields) at fair valuations, while providing defensive commodity exposure,” he said.

“Global grain markets remain relatively tight as growth in crop production has kept pace with demand, but has yet to make up for the loss of production from Ukraine. Looking into 2024, we expect continued tightness with drought in South America impact Brazil soybean/corn production and El Nino posing a threat to global yields while a lower interest rate environment should be supportive for demand. While crop prices have cooled from peaks reached in 2022, they remain elevated at 20-30 per cent above the prior decade average and still support elevated crop profitability which should be constructive for crop inputs demand.”

Mr. Wong believes Saskatoon-based Nutrien Ltd. (NTR-N, NTR-T) as “undervalued,” seeing the potential to “re-rate with Retail segment recovery, market stability, and a re-focus on cash generation.”

Keeping an “outperform” recommendation for its shares, he trimmed his target to US$75 from US$80. The average on the Street is US$72.19.

“We expect Retail to rebound ($1.9-billion EBITDA in 2024 vs. $1.5-billion in 2023), with margins recovering after working off high-cost inventory while demand benefits from strong farm activity given still-elevated crop prices,” said Mr. Wong. “In potash, we see lower prices as the market continues to recover, partially offset by moderately increased volumes due to higher demand ($2.2-billion EBITDA in 2024 vs. $2.4-billion in 2023). In nitrogen, we expect weaker marginal cost support to result in lower realized prices, but see lower natural gas costs and higher sales volumes due to recent debottlenecks and less turnarounds ($1.7-billion EBITDA in 2024, vs. $2.0-billion in 2023).”

“We continue to see Nutrien shares as undervalued, with current valuation at 6.5-7 times EV/EBITDA about in-line with peers which ascribes no premium to the Retail segment or an unjustified discount multiple to the fertilizer segments. If we assumed a 10-11 times multiple on Retail in-line with the average for ag and distribution peers, current Nutrien valuation implies a 4-5 times multiple on the fertilizer segments. We think Nutrien’s valuation multiple may have been negatively impacted by earnings and market volatility through 2022/2023 along with investor concerns regarding previous plans for investment spending. We believe the valuation multiple could recover with more stable market conditions, recovery in Retail, and a renewed focus on cash generation.”

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Desjardins Securities analyst Benoit Poirier expects Bombardier Inc. (BBD.B-T) to be a “significant beneficiary of a declining interest rate environment,” leading him to reaffirm it as his favoured aerospace and defence (A&D) company for the year ahead.

In a note released Wednesday, he also said recent orders provide “further comfort” for both its approaching fourth-quarter financial release as well as 2024.

“With BBD needing only 46 bookings before year-end to hit 1 times book-to-bill for 2023, the 12-jet order in 4Q provides a nice chunk (more than 25 per cent) — which makes us quite confident that BBD will achieve its target while also reinforcing our thesis that the Challenger 3500 platform continues to sell well despite its age,” he said.

“Gulfstream failed to get its new G700 platform certified before year-end, preventing the company from delivering 19 aircraft in 2023. While bizjet customers are usually loyal to specific OEMs, some customers will likely be disappointed, which could be positive for BBD over time as we could potentially see cancellations at Gulfstream.”

Mr. Poirier is now forecasting the Montreal-based company’s leverage to fall to 2.6 times by the end of 2024 and 1.6 times at the end of 2025, which he thinks “should attract incremental investors.”

“From a 2024 guidance perspective, we expect management to call for revenue of more than US$8.0-billion, adjusted EBITDA of more than US$1.300-billion, adjusted EBIT of more than US$900-million, FCF of more than US$450-million and greater than 142 bizjet deliveries, sustaining a book-to-bill ratio of 1 times,” he said.

Reiterating his bullish stance and remaining “confident in management’s ability to meet (and potentially exceed) its 2025 targets,” Mr. Poirier raised his Street-high target for Bombardier by $1 to $104. The average is $77.87.

“Aside from capital allocation, we do not believe BBD is close to the end of its revival process,” he said. “We see greater contribution from aftermarket and defence growth. We are taking a cautious approach in relation to our valuation, using an EV/EBITDA multiple of 8.25 times, but believe an improvement in the leverage ratio to 1.6 times in 2025 would likely command a higher valuation. Applying a 9 times multiple to our 2025 adjusted EBITDA estimate results in a value of $167 per share. We note that the valuation for the recent flyExclusive SPAC was rich at 12.7 times EV/FY2 EBITDA despite expectations for EBITDA margin in 2024 of only 10.4 per cent, below the 13.6 per cent posted by BBD in 2022. This suggests strong investor appetite for the sector and signals that some multiple expansion for BBD could be in the cards as it reduces its risk profile and continues to expand its manufacturing and servicing capacity (only bizjet OEM pure-play investment). Under a blue-sky scenario, we believe a 10 times multiple could be justified, which would drive a value of $189 per share—providing a significant potential return from the current share price. Despite strong fundamentals for the bizjet industry and the above-noted positive developments, the stock is trading at a 45-per-cent discount vs peers (GD, TXT, ERJ and AM) on an EV/EBITDA FY2 basis —which is unjustified, in our view. We believe that management is well on track to meet, or even exceed, its 2025 targets with its key margin and revenue expansion strategic initiatives.”

Elsewhere, CIBC World Markets analyst Kevin Chiang cut his target to $60 from $62, keeping a “neutral” recommendation.

“We have adjusted our BBD model primarily to reflect supply chain issues and have tweaked our delivery expectations for 2024. We expect BBD to deliver 140 units this year, versus our previous expectation of 145. Our 2025 estimates are generally unchanged and we see the path toward BBD hitting its 2025 targets as significantly de-risked,” said Mr. Chiang.

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Equities in the Canadian oilfield services industry remain attractive heading into 2024, according to Stifel analyst Cole Pereira, who sees a “stock picker’s market.”

“Many of the companies in our coverage universe are generating significant FCF and delivering it to shareholders while debt evaporates from the space and ROIC remains at 10-15 year highs,” he said. “However, despite these points, the sector continues to trade near historical lows on the basis of EV/EBITDAS valuations at 3.3 times 2025 on average.”

In a report released Wednesday, Mr. Pereira warned increased commodity price volatiliy has lowered visibility on forward activity and earnings growth. That is likely to cut the potential for positive financial revisions on the Street, which he said is “typically the primary factor influencing share price performance in the space.” It also led him to stress “importance of stock picking has increased significantly.”

“We continue to like what we view as relatively lower risk Oilfield Services names, namely, companies that (1) have larger market caps and higher trading liquidity; (2) are generating an attractive ROIC relative to their peers; (3) are generating meaningful FCF and returning it to shareholders; and (4) trade at inexpensive valuations,” the analyst said. “In particular, we have a positive view of companies that have been reducing their share counts through NCIBs - as this helps enhance per-share growth rates in a lower activity growth environment. In our view the stocks that best reflect the points above in order are TCW (Buy, $6.00/share target price), CEU (Buy, $5.00/sh TP), SES (Buy, $11.25/sh TP), and PD (Buy, $120.00/sh TP).”

Cutting his EBITDA forecast for 2023 by 1 per cent and 2024 by 5 per cent after updating his sector activity projections, Mr. Pereira cut his target prices for nine of the 14 companies in his coverage universe. They include:

* Calfrac Well Services Ltd. (CFW-T, “buy”) to $7 from $8. The average is $7.63.

* CES Energy Solutions Corp. (CEU-T, “buy”) to $5 from $5.25. Average: $4.94.

“CEU continues to screen attractively, with management demonstrating its ability to grow revenue and margins despite declining U.S. activity. The company also boasts one of the stronger ROIC and EBITDAS-FCF conversions in the group, and has been actively returning capital to shareholders. CEU trades at 3.9 times 2025E EV/EBITDAS vs. its closest U.S. peer at 6.0 times,” he said.

* Ensign Energy Services Inc. (ESI-T, “hold”) to $2.50 from $3. Average: $4.18.

* PHX Energy Services Corp. (PHX-T, “buy”) to $11.50 from $12.50. Average: $9.80.

* Precision Drilling Corp. (PD-T, “buy”) to $120 from $135. Average: $126.06.

“We continue to like PD’s leading position in Canada and stable international business despite U.S. activity headwinds. Additionally, with PD set to exit 2023 near 1.5 times net debt/EBITDAS we view the company as best positioned within our coverage to accelerate shareholder returns in 2024. Its valuation remains attractive at 2.8 times 2025 estimated EV/EBITDAS vs. its U.S. peers at 3.7-4.0 times,” he said.

* STEP Energy Services Ltd. (STEP-T, “buy”) to $6 from $7. Average: $6.79.

* Trican Well Service Ltd. (TCW-T, “buy”) to $6 from $6.50. Average: $5.91.

“TCW remains a Stifel Select List name, and we view the company as poised to continue its outperformance given its clean balance sheet, top-quartile ROIC and EBITDAS-FCF conversion and its demonstrated commitment to return capital to shareholders,” he said. “Moreover, the company’s shares have pulled back 24% in the past four months, with the stock now trading at 2.9 times 2025 estimated EV/EBITDAS.”

* Western Energy Services Corp. (WRG-T, “hold”) to $3 from $3.25. Average: $3.13.

Conversely, he raised his target for Pason Systems Inc. (PSI-T) to $17, matching the average, from $16 with a “hold” rating.

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In other analyst actions:

* To reflect a more modest return to his target price following recent share price appreciation, CIBC World Markets’ Kevin Chiang downgraded Canadian National Railway Co. (CNR-T) to “neutral” from “outperformer” with a $176 target, exceeding the $167.17 average on the Street.

“CN is trading at 21 times our 2024 estimated EPS, versus CPKC at 24 times and the U.S. Class 1 average of 19 times,” he said. “Looking back over the last decade, 21 times has generally been the upper bound of CN’s trading range. We continue to have a favourable view on CN’s long-term volume growth story, but see a more balanced risk/reward set-up at current levels.”

* Barclays’ Brandon Oglenski raised his targets for CN to $170 from $155 with an “equal-weight” rating and Canadian Pacific Kansas City Ltd. (CP-T) to $120 from $115, exceeding the $114.39 average, with an “overweight” rating.

“Transportation equities should benefit as freight markets exit recession in early 2024; we expect rail and truck pricing gains to build throughout the year, leading to generally above-consensus earnings estimates across the group,” said Mr. Oglenski. “Our relative preference remains in the rails as we sense investor sentiment remains subdued.”

* TD Securities’ Michael Tupholme increased his targets for Aecon Group Inc. (ARE-T) to $14 from $10.50 with a “hold” rating and Bird Construction Inc. (BDT-T) to $17 from $15.50 with a “buy” rating. The averages are $13.21 and $15.84, respectively.

* Seeing an “attractive setup for 2024,” BMO’s Devin Dodge increased his target for Brookfield Infrastructure Partners LP (BIP-N, BIP.UN-T) to US$40 from US$38 with an “outperform” rating. The average is US$37.59.

“In our view, BIP offers a compelling risk/reward underpinned by double-digit FFO/unit growth, attractive yield, and a robust acquisition pipeline, as well as a potential rerating opportunity,” said Mr. Dodge. “Capital recycling is needed to fund new investment activity, but we believe BIP has several processes underway that could bring back substantial proceeds. BIP is one of our top 3 ideas for 2024.”

* Raymond James’ Rick Patel moved his target for Lululemon Athletica Inc. (LULU-Q) to US$520 from US$495 with an “outperform” rating. The average is US$503.86.

* CIBC’s Jacob Bout raised his Methanex Corp. (MEOH-Q, MX-T) target to US$48 from US$46 with a “neutral” rating. The average is US$53.27.

* Following Minto Apartment REIT’s (MI.UN-T) sale of two older Ottawa assets for net proceeds of $69-million, Scotia’s Mario Saric bumped his target for its units to $18.75 from $18.50 with a “sector perform” rating. The average is $17.61.

“On the surface, we like the news,” he said. “It raises a good amount of the capital to likely (in our view) buy 2 CDL projects (Londsdale Square and The Hyland) from the Minto Group late in 2024 (we estimate approximately $0.01 of dilution; already in our #s). We also view an acceleration in Community Housing Corporations/Government bodies acquiring assets to preserve affordability as a positive for the Apartment Industry on the whole (i.e., crystallizing some of the LT rent MTM). Post recent unit price move, MI NTM [next 12-month] total return of 20 per cent matches sector, but we still view it as a top 2 potential upgrade pick (particularly in a soft landing scenario) vs. top 3-4 before.”

* In the wake of the release of an operational update on Tuesday, Raymond James’ Jeremy McCrea raised his Obsidian Energy Ltd. (OBE-T) target to $15.50 from $15 with an “outperform” rating. The average is $13.81.

“A lot has happened with Obsidian over the past few years,” he said. “Between restarting its Bluesky/Clearwater operations, and shifting from a debt repayment strategy to one of higher growth, we believe there’s increasingly a lot to like about OBE — especially in the context of increasingly more profitable inventory duration. Unfortunately, OBE remains off the radar for most investors, given its prior corporate history throughout the last decade and relative market-cap size today. That said, as well economics, margins, and leverage all improve, and the company takes a position as one of the fastest growing oil names in the basin (15 per cent plus), we suspect the company’s valuation will benefit as well, especially as new follow-up wells in the Bluesky Walrus field come online. Overall, OBE is still in the ‘prove-it’ phase and this operational update was a full display of performance.”

* TD Securities’ Towaki Dojima, currently the lone analyst covering Toronto-based esports and entertainment company Overactive Media Corp. (OAM-X), bumped his target to 30 cents from 20 cents with a “hold” rating.

* In response to its agreement to acquire Morrison Hershfield, Scotia’s Michael Doumet raised his Stantec Inc. (STN-T) target to $110 from $104, keeping a “sector perform” rating, while Stifel’s Ian Gillies bumped his target to $120 from $115 with a “buy” rating. The average is $113.64.

“MH and ZETCON (expected close in 1Q24) are expected to expand STN’s employee base by 6.5 per cent,” Mr. Doumet said. “We estimate STN paid $425 million for the two deals — and while the capital deployed toward the two acquisitions exceeds the capital raised through its recent equity issuance (i.e., $270-million), we estimate STN can debt-fund M&A in excess of more than $1-billion in the NTM without exceeding upper end of its leverage target. We expect the company to actively pursue additional tuck-in transactions (or more sizable ones) in 2024. In addition to incorporating the transaction into our estimates, we raised our valuation multiple with the view that STN increasingly appears to be in the ‘sweet spot’ for M&A — i.e., we believe it is the right size to complete tuck-ins at relatively attractive multiples that, collectively, can move the needle.”